Detailed Rationale

CRISIL Ratings has reaffirmed its Corporate Credit Rating (CCR) for The New India Assurance Company Limited (New India Assurance) at 'CCR AAA/Stable’.

 

The rating is driven by New India's leadership position in the Indian General Insurance Industry, evidenced by a market share of 14.3% (based on gross direct premium written in India in fiscal 2021). As macro growth prospects remained subdued after the outbreak of Covid-19, the company’s gross direct premium grew at 6.2% over fiscal 2021, marginally higher than the industrial growth of 5.2% for the same period. 

 

The slowdown was most evident in the motor segment wherein New India de-grew by 1.4% as against a negative growth of 1.5% witnessed by the industry. The company also calibrated its growth strategy in the crop segment which has exhibited high losses in the past. Resultantly, this portfolio also declined by 48% over the year. The moderating impact of slowdown in these segments, however, was offset by above average growth within the health and fire segments.

 

During the year, the company honoured Rs 1524 crore of claims as coverage for Covid-19 cases. Apart from the standard product – Corona Kavach, these claims were also reported by the traditional individual and group medi-claim policyholders. However, claims for non-Covid illnesses/ casualties were lower during the year. Similarly, for other segments also – instances of claim reports were lower this year attributed to restricted public activity and vehicular traffic. This led to a reduced claims ratio of 79.3% for the first nine months of fiscal 2021 as compared to 91.5% for the corresponding period of the previous fiscal. Resultantly, combined ratio of the company also improved to 109.6% from 116.4% over the same period.

 

With onset of the second wave, as the severity and frequency of casualties is higher and penetration of health insurance has increased in the last 1 year, an upward revision in Covid-19 coverage products could be in order so as to adequately factor in the increased risks. In the near to medium term, the losses incurred from Covid 19 and its impact on the company’s overall underwriting performance remains a key monitorable.

Financial risk profile of New India remains supported by its healthy capitalization and solvency ratio. On December 31, 2020 – the company’s networth stood at Rs 15,554 crore (adjusted for foreign currency translation reserves, miscellaneous expenditure and deferred tax assets) and its solvency ratio was comfortable at 2.15 times. In addition, the company also had a substantial balance of Rs 17,383 crore in its fair value change account.

 

The company’s underwriting performance, though improved over the last two fiscals, remains modest. Underwriting deficit for nine months through December 31, 2020 was Rs 1975 crore and its impact on the overall profitability, was offset by a healthy investment income of Rs 4,368 crore. Net profit for the period was Rs 1363 crore, 5.6% higher than the net profit for the last corresponding period.

 

The rating also factors in the strategic importance of New India to, and expectation of strong support from, the parent – Government of India.

 

For fiscal 2022, the growth in industry’s new business premium for larger segments like motor insurance could remain muted for a longer stretch as revival in new sales volumes in the auto sector will happen only at a gradual pace once the lockdowns across states are lifted. Renewal premiums from the retail segment could also been impacted on account of job losses and pay-cuts. For the health segment - which is the second largest after motor, CRISIL believes that growth prospects will remain strong driven by increased market awareness and demand for add-on covers. In a scenario where pricing for Covid-19 policies is revised upwards, growth in this segment could be higher than that of last fiscal. However, with increasing ticket size of Covid-19 claims, the impact of actual losses borne by the insurers after the second wave – on their underwriting performance and capital and solvency position, remains to be seen.

Analytical Approach

For arriving at the corporate credit rating, CRISIL Ratings has assessed the standalone business, financial and management risk profile of New India Assurance and then, a notch up has been applied to indicate the company's strategic importance to GoI and support expected thereof.

Key Rating Drivers & Detailed Description

Strengths:

• Leadership position in the Indian General Insurance Industry

New India Assurance has maintained its leadership position in the Indian general insurance industry with market share remaining sufficiently above that of other peers; based on gross direct premium (domestic) in fiscal 2021 - the company held 14.3% of market share.

 

Having underwritten a gross direct premium of Rs 28,482 crore for the fiscal 2021, the company registered a growth of 6.2% over last fiscal which is marginally higher than a 5.2% of growth witnessed by the industry. Fire and health segments emerged as key drivers for growth during the year, while opportunities within motor segment remained subdued. The growth strategy for crop business was also calibrated, resulting in reduced exposure heretol.

 

Further, New India is the only Indian general insurer with a sizeable international presence, spread across 28 countries; close to 10% of its annual gross direct premium originates from outside India. New India Assurance will continue to benefit from its long, established track record and superior market reach. Its status as a GoI-owned entity will enable it to sustain its market position in the Indian general insurance sector.

 

In light of the recent announcement on cessation of merger process of the three other public sector insurers which would have resulted in formation of an amalgamated entity with 30% market share, New India will uphold its leadership position in the sector.

 

• Healthy capitalisation and solvency ratio

Capital position of New India has remained healthy reflected in its large net worth of Rs. 15,546 crore as on December 31, 2020. Networth adjusted for un-booked appreciation in equity investments (reflected in its fair-value change account) is even stronger at Rs 32,929 crore. The strong capital position results in a healthy solvency ratio (available solvency margin/required solvency margin) of 2.15 times which is among the highest in the domestic non-life industry.

 

The solvency ratio, after adjusting for un-booked appreciation in equity investments in available solvency margin, is substantially higher at 4.8 times though - has declined marginally from its previous levels due to volatility in unrealized gains on equity investments in line with general market scenario.

 

Capitalisation should remain healthy over the medium term. Capital position of New India, in the normal course of business, is expected to remain comfortable ' supported by healthy accretions and substantial balance in fair value change account.

 

• Sound investment portfolio quality

Quality of investments has remains sound. More than 99.8% of its debt investments were in securities rated 'A' or higher as on December 31, 2020. On the same date, almost 89% of the debt investments had a residual maturity of more than 3 years. Gross non performing assets stood at 1.43% on December 31, 2020 and the company had a provision cover of 94.4% on these exposures.

 

Investment profile is additionally supported by more than half the book being parked in government securities (central and state). Book value of investments as on December 31, 2020 stood at Rs 64,195 crore.

 

• Strategic importance to, and expectation of continued support from the Government of India

New India Assurance is strategically important to GoI because of its dominant market position (over 30 million policies) and, because it is the flagship Indian general insurer in the international markets, with a desk at the prestigious Lloyd's syndicate in London.

 

The importance of the general insurance sector, especially GoI-owned insurers such as New India Assurance, can be seen in the context of GoI's plan to materially enhance insurance penetration over the long term. General insurance companies, especially government-owned entities, are systemically important and will receive support from the government in the event of strain on their credit risk profiles.

 

Weaknesses:

• Modest underwriting performance

New India Assurance's underwriting performance, though restored over the last 2-3 fiscals, remains modest. For nine months through fiscal 2021, the company's claims ratio of 79.3% was significantly lower than 91.5% incurred for the corresponding 9 months of the previous fiscal. This improvement was observed across all the key segments like fire, motor and health and, was driven by reduced instances of claims since the outbreak of the pandemic in March 2020. While the company did incur Rs 1,524 crore worth of claims due to Covid-19 (including off shore losses), its impact on the overall loss ratio was offset by decline in other, non-Covid related claims. On the expenses side, the ratio increased to 30.3% for the first nine months of fiscal 2021 from 24.8% for the corresponding period of the previous fiscal. This was attributed to a one time provision for pension gratuity for employees. Overall combined ratio, driven by reduction in claims, improved to 109.6% from 116.4%. This corresponded to a reduction in underwriting deficit for nine months ended December 2020 to Rs 1,975 crore from Rs 3,045 crore for the respective periods.

 

The underwriting performance remains modest for now, however the combined ratio should improve gradually over the medium term, supported by the company’s efforts to improve performance in some of their core segments like motor and health. Further, calibrated growth strategy in the crop segment which has exhibited very high loss ratios in the past, would also have a positive impact on the underwriting performance of the company.

 

From a medium term perspective, the losses borne due to the second pandemic wave and its impact on the overall combined ratio of the company will remain a monitorable.

Liquidity: Superior

The company's liquidity is comfortable, with a large proportion of liquid investments. On December 31, 2020, government securities (G-secs) accounted for 57% of its investment portfolio based on market value. Additionally, a cash and bank balance of over Rs 9,831 crore and a substantial balance of Rs 16,383 crore in fair value change account, enhance the company's liquidity position.

Outlook: Stable

New India Assurance should continue to benefit from its leadership position in the Indian general insurance industry and maintain its market share, healthy capitalisation, sound asset quality, and comfortable liquidity over the medium term. New India Assurance will also receive support from GoI, in the unlikely event of financial distress.

Rating Sensitivity factors

Downward factors

• Substantial increase in underwriting losses, adversely impacting its profitability or solvency position.
• A sizeable decline in the extent of ownership to below 51% or reduction in strategic importance of New India Assurance to GoI

About the Company

The New India Assurance Company Limited (New India Assurance) is India’s largest non-life insurance company with the Governent of India (GoI) holding 85.54%. New India was established in 1919 by Sir Dorabji Tata and nationalised in 1973. Post nationalisation, it became one of the four subsidiaries of the General Insurance Company of India (GIC). But when GIC became a re-insurance company as per the IRDA Act 1999, its four primary insurance subsidiaries New India Assurance, United India Insurance, Oriental Insurance and National Insurance got autonomy. 

 

It is the only Indian general insurance company that has a strong presence in India as well as good reach outside India. In India, New India operates through 31 regional offices, 477 divisional offices, 594 branch offices (including 27 direct agent branches), 1257 micro offices, 1 auto hub, 7 large corporate and brokers' offices and 1 office at International Financial Services Centre (IFSC) in Gujarat International Finance Tec-City. It is also present in 28 other countries through a network of 19 branch offices, 7 agencies, 3 subsidiary companies, 1 Representative Office and 3 associates.

Key Financial Indicators

As on / for the period ended March 31		2020	2019
Gross direct premium	Rs. Cr.	29,715	26,608
Networth*	Rs. Cr.	14,464	14,306
Profit after tax	Rs. Cr.	1418	580
Combined ratio	%	116.4	124.0
Solvency margin	Times	2.11	2.13

*(adjusted foreign currency translation reserves, misc. expenditure and deferred tax assets)

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs. Crore)	Complexity Level	Rating Assigned  with Outlook
NA	NA	NA	NA	NA	NA	NA	NA